• US dollar bulls lurking at a key hourly structure.
  • The US CPI could be the catalyst for a move higher in both US yields and the greenback.

The US dollar and yields rallied on Friday, recovering from the sharpest daily drop in more than two weeks, following the Nonfarm Payrolls blockbuster report.

The US jobs report showed a 528,000 gain in payrolls for July, beating estimates for an increase of 250,000, compared with the 398,000 increase in June. On top of that, the Unemployment Rate fell to 3.5% vs. estimates of 3.6%. Meanwhile, the average hourly earnings were up 0.5%, stronger than an upward revised 0.4% increase in June, keeping the adjusted year-over-year rate at 5.2% compared with expectations for a slowdown to 4.9%. Overall, this leaves the Unemployment Rate back to its pre-pandemic low while hourly earnings are surging. Markets are therefore revising their Federal Reserve bets higher with sharper odds of a 75bp Fed hike.

The US dollar index (DXY), which measures the greenback against a basket of currencies, rallied to a high of 106.93 after sliding 0.68% on Thursday, the largest fall since July 19. It remains around 2.5% below its mid-July high. The chart below illustrates the prospects of a further move higher from the neckline of the W-formation on the hourly chart:

Meanwhile, the US 10-year treasury yields have rallied from the daily chart's broadening formation's support as markets reprice Federal reserve interest rate expectations following the NFP report:

 

The curve continues to be more inverse. 2-year government bond yields rose from 3.06% to 3.26%, and 10-year government bond yields rose from 2.68% to 2.82%.  This week's US Consumer Price Index could be key in this regard. 

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